The price of oil briefly touched $100 per barrel yesterday, just short of the all-time 
inflation-adjusted high of $102.81 in April 1980.According to economic forecasting firm Global Insight, each $10-per-barrel increase in oil prices:Increases gas prices by 19 per gallonCuts consumer spending by one-third of a percentReduces employment by 100,000Adds one-half percent to consumer pricesAnd, because oil prices have nearly doubled from the $51/barrel levels of January 2007, the above figures calculate out to:$0.95 more per gallon in 2007 because of oil prices1.67% cut to consumer spending in 2007 because of oil prices500,000 lost jobs in 2007 because of oil prices2.50% increase in consumer costs in 2007 because of oil pricesIn addition, oil’s run-up has ignited fears of inflation and of recession, with the possibility that both would exist at the same time. 
This rare economic condition is commonly referred to as “stagflation” Stagflation is a particularly difficult situation for the Federal Reserve because increasing the Fed Funds Rate would increase the likelihood of recession whereas lowering the Fed Funds Rate would increase the risk of inflation. For now, mortgage rates are benefiting because less evidence of inflation could attract foreign investment in mortgage bonds. As demand for bonds increases, mortgage rates fall.SourceWeakened U.S. Economy May Be Facing New TestSudeep ReddyThe Wall Street Journal Online, January 3, 2008http://online.wsj.com/article/SB119930367405362875.html
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